7 Defense Stocks and ETFs to Watch in 2026

Defense stocks are shares of companies that supply aircraft, missiles, ships, sensors, communications systems, cybersecurity tools, and other products or services to governments. The sector also includes companies with large commercial aerospace businesses, so not every dollar of sales comes from military work.

You can invest through individual military stocks or an exchange-traded fund, commonly called an ETF. A stock gives you direct exposure to one company. An ETF holds a group of companies and can reduce company-specific risk, although it can still be concentrated in one industry.

Start by deciding what kind of exposure you want. Individual companies may offer clearer exposure to certain programs, but their results can be hurt by one delayed contract or cost overrun. Funds such as ITA and XAR spread money across several aerospace and defense stocks, but their weighting rules, fees, and holdings differ.

Defense is not automatically a safe sector. Government demand may be durable, but budgets, appropriations, program decisions, contract terms, execution problems, and valuation still matter. The Department of Defense budget request is also a proposal, not a guarantee that Congress will fund every requested program.

The seven names below are research starting points, not personalized recommendations. The company figures come from official results or regulatory filings, while fund details come from the providers. Dates matter because backlogs and ETF holdings change.

A backlog is the value of contracted or expected work that has not yet been recognized as revenue. It can offer visibility, but timing, funding, cancellations, contract changes, and execution costs affect how much becomes profitable revenue.

Exposure: Lockheed Martin is a major defense contractor with programs across aeronautics, missiles, rotary and mission systems, and space.

Evidence: The company reported second-quarter 2026 sales of $20.1 billion and a backlog of $230.4 billion as of June 28, 2026. That backlog indicates a large amount of future work, but it is not the same as earned revenue or guaranteed profit.

Watch-out: Large programs can create concentration. Investors should examine contract types, program milestones, cash flow, and management's estimates for completing fixed-price work.

Exposure: RTX combines defense operations with a large commercial aerospace business. That mix can provide more varied demand, but it also means the stock is not a pure defense investment.

Evidence: RTX reported second-quarter 2026 sales of $24.7 billion. Its backlog was $289 billion, divided between $170 billion of commercial work and $119 billion of defense work.

Watch-out: Compare performance in both sides of the business. Airline demand, engine production, supply chains, product quality, defense contract execution, and program charges can all affect results.

Exposure: Northrop Grumman operates across aeronautics, defense systems, mission systems, and space. Its work includes long-cycle programs that may take years to deliver.

Evidence: In the first quarter of 2026, the company recorded $9.8 billion in net awards and ended the quarter with a $95.6 billion backlog. Its filing said about 35% of that backlog was expected to convert into sales during the following 12 months.

Watch-out: The conversion estimate is not a promise. Funding schedules, customer decisions, production progress, and cost estimates can change the timing and profitability of the work.

Exposure: General Dynamics has defense businesses in combat systems, marine systems, and technologies, plus Gulfstream business aviation. This creates a mix of government and commercial demand.

Evidence: The company reported a backlog of $130.8 billion for the first quarter of 2026. Investors can use the backlog as one measure of future workload, then compare it with revenue growth, margins, cash generation, and new awards.

Watch-out: Shipbuilding and other complex programs can face long production schedules and changing cost estimates. Gulfstream also adds exposure to the business-jet market.

Exposure: L3Harris supplies communications, sensors, electronic systems, space technology, and other mission-focused products. Its portfolio differs from contractors that depend more heavily on aircraft or shipbuilding.

Evidence: L3Harris reported a contractual backlog of $38.7 billion for fiscal 2025, an increase of 13%. Contractual backlog can help show demand already supported by agreements, but it does not tell you the margin or delivery date of each project.

Watch-out: Study integration work, program execution, debt, cash conversion, and the difference between funded and unfunded orders. A growing backlog is less useful if costs rise faster than sales.

Exposure: ITA offers a single-fund route into US aerospace and defense companies. As of July 24, 2026, the fund reported 49 holdings and 99.81% exposure to the aerospace and defense industry.

Evidence: The fund's stated expense ratio was 0.38%. That equals about $3.80 a year for every $1,000 invested, before changes in value and other trading costs.

Watch-out: ITA's holdings are not equally weighted, so larger positions can drive results. Review the latest holdings, index method, bid-ask spread, and expense ratio before buying. Our guides explain what an ETF is and how ETF fees reduce returns.

Exposure: XAR held 47 companies as of July 27, 2026. It uses a modified equal-weight approach, which generally spreads exposure more broadly than a market-cap-weighted portfolio.

Evidence: State Street listed a 0.35% gross expense ratio as of July 27, 2026. That is about $3.50 annually for each $1,000 invested, before market movements and trading costs.

Watch-out: Modified equal weighting may give smaller companies more influence and requires periodic rebalancing. It does not remove sector risk. Compare XAR with other candidates in our guide to the best ETFs to buy now, focusing on methodology rather than recent returns.

Begin with customer mix. A contractor that depends heavily on one agency or program may be more exposed to a budget change. A company with commercial aerospace operations may be more diversified, but it also brings airline, manufacturing, and consumer-travel cycles into the investment case.

Next, separate funded backlog from unfunded backlog. Funded amounts generally have money authorized and appropriated, while unfunded amounts may depend on later government action. In either case, backlog is not revenue and does not guarantee a profitable delivery.

Contract structure matters too. Under a fixed-price contract, the supplier may bear more risk when labor, materials, or engineering costs rise. Cost-reimbursement contracts can shift more allowable cost risk to the customer, but they still include performance rules and oversight.

Compare valuation with expected growth and risk. Useful measures can include price-to-earnings ratios, free cash flow yield, debt, margins, return on invested capital, and dividend coverage. Avoid buying only because a company announced a large award. The value, timing, funding status, and likely margin of that award matter.

For an ETF, examine its index, weighting method, top positions, number of holdings, rebalance schedule, spread, and fee. Two funds covering the same industry can behave differently because one concentrates in the largest contractors while another gives more weight to smaller suppliers. See how to build an ETF portfolio before deciding how a sector fund fits beside broader holdings.

US investors can generally buy listed defense shares and ETFs through a brokerage account. Compare trading features, fund access, costs, and account support among the best investment apps for beginners. You can also review where to buy ETFs if you prefer a fund.

A taxable brokerage account provides flexibility, but sales and distributions can create tax consequences. An IRA may offer tax advantages under federal rules, while a 401(k) limits you to investments selected by the plan. Sector ETFs may not be available in every workplace plan. Tax treatment depends on your account and circumstances, so consult a qualified tax professional when needed.

Decide how you will place the trade. A market order aims to execute quickly but does not guarantee the price. A limit order sets the highest price you will pay or the lowest price you will accept, although it may not execute. Check current quotes through stock prices today and note earnings, Federal Reserve events, and other dates on the stock market calendar.

Think about position size before buying. A defense position should be considered alongside your other stocks, funds, time horizon, and ability to accept losses. A broad portfolio can reduce dependence on one industry, but diversification cannot prevent every loss.

Defense demand can change with elections, congressional appropriations, military priorities, foreign policy, and program reviews. A presidential budget request shows an administration's priorities, but Congress controls appropriations. Avoid treating a proposed budget or announced award as guaranteed future revenue.

Execution risk is especially important in long, technical programs. Design changes, labor shortages, supplier delays, inflation, testing problems, or production defects can raise costs. Under a fixed-price agreement, some of those added costs may fall on the contractor and reduce margins.

Valuation can also work against investors. A strong story may already be reflected in the share price. Compare expectations with cash flow, debt, margins, and realistic growth instead of assuming geopolitical tension will automatically lift every contractor.

Concentration is another common mistake. Owning several military stocks does not necessarily create broad diversification because the companies may depend on the same budgets, suppliers, or policy trends. A defense ETF spreads company risk but remains exposed to the sector. Our discussion of market crash risks explains why industry strength cannot protect a portfolio from every broad selloff.

Supply chains and geopolitics can create both demand and disruption. Specialized materials, electronics, and components may have few suppliers. Export controls and government approvals can also limit sales or delay deliveries.

Investors may also have ethical concerns about weapons production or military contracting. Review each company's business mix and the ETF's holdings rather than relying on the fund name. Finally, remember that commercial aerospace exposure can change the behavior of companies such as RTX and General Dynamics, especially when airline or business-jet demand moves differently from defense spending.

Use the same process for every candidate so an exciting headline does not replace analysis. Compare each idea with broader opportunities in our guide to the best stocks to buy.